Vale confident of improving ore quality

Vale has defended itself against criticism about the quality of its iron ore, telling investors that new mines coming on-stream next year will help position it ahead of its Australian competitors.

The Brazilian miner’s director of ferrous and strategy, Jose Martins, admitted that difficulties controlling the amount of silica in its iron ore meant it had to offer steep discounts to its customers.

“As you can see, we have a deep decrease in iron quantity in our ore on average and also a big increase in silica content until 2012," Mr Martins said.

“But with new projects . . . next year, we’re going to see the quality of iron ore go up in terms of iron units and a decrease in silica content in a level much better than main competitors."

Vale’s revenue has been hit by quickly eroding premiums for its higher iron content, which have been obliterated because of steel-making over-capacity.

“We are used to getting $US6, $US7 for every 1 cent of additional iron [in our] ore and today is around $US2," Mr Martins said.

“So there was a big drop in premium for quality. And the reason for this big drop is because there was kind of over-supply in the short term . . . so this premium went down."

Unlike its Australian rivals Rio Tinto, BHP Billiton and Fortescue Metals Group, Vale expects to ship less ore in 2012 and 2013 than it did in 2011.

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Vale, the world’s biggest iron ore miner, said it would ship 306 million tonnes in 2013, less than its 312 million tonnes output in 2011.

In the first nine months of 2012, Vale’s production totalled 234 million tonnes, 2.2 per cent less than the same period in 2011.

Deutsche Bank analyst Daniel Brebner said Brazil’s output would be flat in 2013 while “Australian growth is susceptible to modest downgrades".

But Vale was more positive about the long-term outlook for its high-quality pellets, saying cheap US gas would boost demand for direct reduced iron over blast furnace output, particularly as carbon limits put pressure on coking facilities.